National Pension System: Why you should choose NPS for your retirement planning

What is NPS?

NPS is a Central Government scheme in which any individual citizen (either salaried or non-salaried) of India (both resident and non-resident) between the ages of 18 and 70 can participate and set aside an amount on a regular basis.

When the investor retires, he or she has the option of withdrawing upto 60% funds as lump sum while the rest can be used as an annuity plan for regular flow of income. There are standard deductions under Section 80C and 80CCD in a fiscal year if invested in NPS.

NPS Tier-1 account

Tier I – Pension account (Mandatory A/C – Tax benefit available)

Minimum Contribution during A/C opening is Rs.500 for Tier I

NPS Tier-2 account

Tier II – Investment account (Optional A/C – No tax benefit but corpus is withdrawable anytime)

Minimum Contribution during A/C opening is Rs.1,000 for Tier II

NPS: Flexibility of Investments

Subscriber may select a Pension Fund Manager (PFM) of their choice. Subscriber is allowed to change PFM once during a Financial Year. Subscribers may also define their asset allocation, which may be changed four times in a given Financial Year.

Benefits of investing in NPS for securing Post Retirement Life

NPS: Tax Benefit available under Tier I Account

Employee Contribution:

Exclusive tax savings provision: Tax deduction u/s 80CCD (1B) on contribution of Rs.50,000.

Tax deduction u/s 80CCE for investments (10% of Basic & DA) within overall limit of Rs. 1.50 lacs.

Employer contribution

Tax deduction upto 10% of salary (Basic + DA) u/s 80CCD (2) subject to monetary ceiling of Rs.7.5 lacs (includes PF, Superannuation, etc.)

NPS: Exit Option under Tier I 

On attaining age of 60 years :

Min. 40% of the corpus needs to be invested in Annuity Scheme

60% of the corpus can be commuted/withdrawn in lump sum/ staggered anytime upto age of 75 yrs; Amount is tax free.

If total corpus is equal or less than Rs. 5.00 Lacs, then entire corpus can be withdrawn

Before 60 years of age (after completion of 5 years):

20% of the corpus can be withdrawn in lump sum

80% of the corpus will be invested in a ‘Annuity Scheme’

If total corpus is equal or less than Rs. 2.50 Lacs, then entire corpus can be withdrawn

NPS: Part Withdrawals under Tier I 

A partial withdrawal of accumulated pension wealth, not exceeding 25% of the employee contributions, after a lock in period of 3 years.

Allowed to withdraw only a maximum of three (3) times during the entire tenure subject to conditions prescribed by the Regulator.